August is set to start with one of the most volatile week with plenty of economic data which will explode plenty of fireworks. Although, this month is usually considered as low volatility month because most of the traders are enjoying the last leg of their summer holiday, but this week is certainly not one of them.
The Chinese stock market weakness has become the major concern for traders over the past few weeks and this has occupied the headlines for some time. Today once again, the fragile manufacturing PMI reading has reinforced those concerns with the print of 47.8.
All in all, most of the economic data from China are very disturbing and it is sending tremors throughout the economy and we do not see how the government will be able to achieve its 7 percent GDP target. So, only cutting interest rates or printing more moment may not resolve the problem in hand, the Chinese government may have to bring out much bigger guns to prop up the economic growth.
Last week, we had the print of the U.S. GDP revision for this year, which we said will be the most important element for the Fed in gauging the economic health of the country. For this week, it will be the U.S. Non farm payroll data which is due on Friday and two important elements under focus will be the average hourly earnings and wage growth. If we do see a robust number for these two, then obviously it will increase the further prospects of the U.S. increases the borrowing rates.
Another important feature which will further stimulate the volatility this week will be the reopening of the Greek stock market, which has been closed for almost five weeks. Investors will certainly find the Greek stock market reopening more comfortable as this shows more promising signs of confidence. Reopening of the stock market confirms that the country is on the path of normalisation.
What investors will be focusing when it comes to Greek saga is about the ongoing conflict in approach between the IMF and the euro group officials. Without the support of the IMF, Germany’s Bundesbank will never come on board to discuss the third bailout package. While this remains the major obstacle, but the IMF have their own reservations which are that the Greek debt is completely unsustainable and without a meaningful debt relief, there is no point in giving more debt.
Another important day this week will be the supper Thursday as this will be the first time that the Bank of England will be releasing all the major economic data on the same day. This is a very different approach, but surely the bank feels confident in testing this, and if successful, this could become the benchmark for other countries. The Bank of England’s rate decision, policy minutes and quarterly inflation will be released this Thursday. The Bank of England’s governor, Mark Carney, will speak soon after this economic data- in short, the enormous amount of volatility for the GBP currency across the basket of currencies.
The economic docket is full today as well with important economic data which can move the markets. The U.S. personal income and spending data for the month of June will be released later this afternoon. Later we also have the core PCE data which is once again an important measure for the Fed when it comes to inflation. The ISM manufacturing data is due at 15:00 BST and the forecast is for 53.5.